Traditional investing, such as stocks, mutual funds, real estate, and bonds, is a well-established method to grow wealth among American adults.
Although stocks and real estate have proven themselves worthwhile investments, it may be time to diversify your portfolio with cryptocurrency. From stark differences to surprising similarities, you’re about to learn the benefits of cryptocurrencies compared to traditional investments.
What Is Traditional Investing?
Traditional investments include individual stocks, bonds, mutual funds (401k/IRA), real estate, and commodities.
According to research, roughly 58% of American adults invest in stocks and mutual funds. It’s no wonder it’s called traditional investing when so many individuals actively participate in the stock market.
Compare that with the number of American adults who say they’ve invested in crypto — a mere 12%, according to the Federal Reserve. As such, cryptocurrencies are viewed as emergent investments compared to traditional investments.
The Benefits of Cryptocurrency Over Traditional Investments
Crypto has come a long way since Bitcoin paved the way in 2009 for digital currencies.
From accessibility to inflation-resistant mechanisms, crypto holds many benefits over traditional investments that may come as a surprise.
Crypto Offers Fractionalized Ownership
In the world of digital assets (crypto), you don’t have to buy a whole coin (e.g., 1 Bitcoin).
Similarly, traditional stocks allow you to purchase fractional shares. Although it looks like crypto and stocks are the same in this regard — wait until you read the fine print regarding traditional fractional shares.
If you want to move fractional shares of a traditional stock to a new broker, you’ll need to cash out and repurchase. In other words, this small event may turn into a big tax implication. Compare that to crypto, where you can buy fractional amounts and move cryptocurrency with minimal friction.
Additionally, only some financial institutions offer a broad range of fractional shares, making them harder to come by. On the other hand, you can buy fractions of available cryptocurrencies across a wide range of popular crypto exchanges, such as Coinbase.
Crypto Offers Increased Ways to Passive Income
Half the reason traditional stocks, bonds, and mutual funds have such high popularity is their ability to earn interest or dividends.
Interest and dividends are incentives to put your money to work and compound your gains on top of your original investment. However, crypto puts an interesting twist on compounding gains via novel mechanisms known as yield farming and staking.
Yield farming is a method that allows you to earn interest by lending crypto. Some of the most popular yield farming strategies can net you upwards of 50% APY — returns that eclipse the 3% APY found in traditional high-yield savings accounts.
Staking is a popular method that puts crypto to work by locking coins with a delegator that runs a node to verify and confirm blocks within a proof-of-stake (PoS) network. By locking your coins, you’ll receive a percentage of rewards in the form of crypto — sometimes upwards of 30% APY.
Ultimately, staking and yield farming offer lucrative options to generate passive income compared to traditional stocks with low APY rates and dividend payouts. Yield farming and staking does involve counterparty risk with a potential to lose access to your funds if the other party becomes insolvent so it is very important to understand the risks before starting to yield farm or stake digital assets.
Crypto Is Inflation-Resistant or Deflationary
The biggest economic fear is inflation — and the United States posted one of its highest inflation rates year-over-year at 8.3%.
Inflation doesn’t just mean rising prices but also less purchasing power. In other words, inflation is the bane of traditional stock market investors because consumer spending drops. With less revenue, corporations and their stocks begin to plummet in value, making investors weary of entering stocks during high inflation periods.
Now compare that with top cryptocurrencies, such as Bitcoin and Ethereum.
Bitcoin has a fixed supply of 21 million BTC. Further strengthening Bitcoin’s inflation resistance is that its network relies on a consensus algorithm that becomes exponentially challenging as more miners participate in mining Bitcoin block rewards.
Currently, a single Bitcoin block reward is worth 6.25 BTC. The ace up Bitcoin’s sleeve is that the block rewards are slashed in half every four years in the halving process, placing the last Bitcoin block to be mined in the year 2140.
With its fixed supply and decreasing release rate, Bitcoin is increasingly viewed as one of the most inflation-resistant investments available.
Alternatively, Ethereum’s latest merge towards proof-of-stake makes it the first deflationary cryptocurrency. Soon after the merge, Ethereum’s network burned more ETH compared to the amount supplied.
Although Ethereum does not have a fixed supply like Bitcoin, it currently removes more ETH from circulation than the amount issued. However, the burn rate fluctuates due to network usage, making Ethereum deflationary at times or inflation-resistant.
Crypto Is Decentralized
Another benefit of crypto is its uncompromising view toward decentralization.
Cryptocurrencies, such as Bitcoin and Ethereum, are not controlled by single entities or a board of directors. Instead, crypto is controlled by a distributed network composed of thousands of individual investors.
Traditional stocks, bonds, and mutual funds represent shares or loans within centralized entities. For example, a single share of TSLA stock represents fractional ownership within Tesla — a centralized corporation.
Crypto Can Be Moved Freely and Offers True Ownership
When it comes to your 401(k) savings, can you easily send it to another wallet?
How about your stocks and bonds? The answer is probably no. Ultimately, traditional investments rely on institutional-grade custodial methods that make it challenging to move your assets when you want.
Although stock investing has become much like crypto in the sense of mobile app wallets, such as Robinhood — traditional investments are much more cumbersome and expensive to move.
On the other hand, crypto can be stored in a personal wallet, making self-custody an alluring reality. With self-custody comes one of the most fundamental aspects of crypto: true ownership.
Ultimately, crypto allows you to buy, sell, move, and receive funds when you want — not when the stock market opens, or your broker wakes up.
Crypto Offers Exciting Returns
The crypto market is volatile and may provide lucrative returns for investors.
For example, Ethereum began 2021 at $730 and ended the year at $3,780. However, volatility swings both ways, and equally significant downturns can send investors running for cover.
Still, crypto at large has outperformed the S&P 500 due to the ongoing volatility wreaking havoc in traditional stocks. Overall, crypto offers returns that are challenging to find in conventional investments — especially when invested for the long term.
Crypto Is Easy for Beginners
One of the hallmarks of crypto is that it’s accessible to beginners.
You can begin investing in crypto with an internet connection and bank account. Although you can invest on your own after doing in-depth investment research, you may want to consider a crypto investment adviser for assistance.
Crypto investment advisers will make you feel at home within the crypto sphere — especially if you’ve used a broker or fund manager in the past. From buying and selling to safely storing crypto, crypto investment advisers take the learning curve out of the equation.
Ultimately, crypto has less barriers-to-entry compared to traditional investments. Whereas you need an employer to sponsor a lucrative 401(k) — you only need an internet connection and bank account to start investing in crypto with an automated investment adviser.
Shrimpy Advisory is an investment adviser registered with the US Securities and Exchange Commission. Registration as an investment adviser does not imply a particular level of skill or training. Shrimpy Advisory exclusively provides investment advisory services related to investing in digital assets.
The above material and content should not be considered to be a recommendation to invest in a basket or an individual digital asset. Investing in digital assets or cryptocurrency (collectively “digital assets”) is highly speculative and volatile, and digital assets are only suitable for investors who are willing to bear the risk of loss and experience sharp drawdowns. Past performance does not guarantee future results and the likelihood of investment outcomes are hypothetical in nature.